Construction Crunch, ATO Defaults, and the Risk of Staying Silent

This month, we unpack the rising tax debt crisis across construction, trades, and project-based industries — and the cash flow mechanics driving even solid businesses into default.

Margins are tight. Retentions are dragging. And the ATO?

They’re not just sending warnings — they’re sending consequences.

Sometimes, the signal isn’t noise. It’s silence.

When the ATO goes quiet, enforcement is often already in motion.

From stalled payments to rising director risk, these are the red flags our advisors are seeing daily — and the practical steps you can take now to help clients act before it’s too late.

TL;DR:
If you’re advising clients in construction or trades, don’t wait for the ATO to act.
Ask the tough questions early — while there’s still time to move.

“Letting the sleeping dog lie is no longer a strategy. Silence is now the warning.”
— David Lopez, Balance My Books

Michael Moon (Tax Assure) & David Lopez (Balance My Books) In Conversation

Accountants and advisors across the sector estimate that 50–75% of construction clients are carrying ATO debt — often without fully realising how close they are to enforcement.

That insight comes straight from David Lopez and what he’s seeing across his client base and industry network.

This isn’t poor management. It’s structural.

Key Pressure Points:

• Retentions tying up 5–10% of contract value for 12+ months

• Fixed labour costs draining cash flow between jobs

• Underpriced contracts ignoring cost inflation and rising overheads

• Delayed approvals slowing project income

• Low visibility over GST, BAS, and future tax liabilities

Advisor Takeaway:

A full pipeline doesn’t mean healthy cash flow. Ask your clients:

• What percentage of revenue is tied up in retentions?

• Can they meet weekly payroll and BAS without relying on future invoices?

• Is ATO debt creeping over $100K?
  That’s the credit reporting threshold — often triggered without the client realising.

• Is there older ATO debt still unresolved?
  It’s not just about size — aged debt and compliance history drive enforcement. A $70K debt sitting for 12 months is riskier than a fresh $120K one lodged on time.

Why It Matters:

If you’re not ahead of it, you’re already behind — and once enforcement lands, your window to act has already started closing.

▶️ Watch the full conversation: Michael Moon and David Lopez unpack how ATO debt became business-as-usual — and why visibility, not blame, is the missing piece.

ATO Credit Defaults Are Hitting Construction First

The ATO is now reporting debts over $100K to credit agencies — often without the business realising.

While a formal warning is required, it’s frequently missed, misread, or sent to an outdated address.

The result? Instant default — often without the business even knowing.

• Triggers funding cancellations

• Forces suppliers onto COD

• Damages contractor and builder trust

And it’s not just the size of the debt that matters.

The ATO isn’t chasing size — it’s chasing compliance behaviour.

It’s looking for signals: aged debt, missed lodgements, repeat defaults, risky industries.

The trigger isn’t always the amount — it’s the pattern.

Most businesses only find out after the damage is done.

What This Means for Advisors and Brokers:

• Always check ATO debt status before lodging finance.

• A credit file that looked clean last week might already be flagged today.

ATO Recovery Is Now Automated — and Faster

The ATO is no longer relying on warning letters.

Instead, recovery actions like Director Penalty Notices (DPNs), garnishee notices, and credit defaults are now often triggered automatically based on internal system rules.

• Accounts may be flagged based on debt size, missed lodgements, or industry risk (e.g. construction, labour hire)

• Default events are often months in the making — but only visible once they’re live

• There’s often no advance warning before action is taken

Practical Tip:
If clients are past $100K in debt, assume enforcement is imminent — even if communication has gone quiet.

What Early-Stage Advisors Can Do Now

Proactive engagement beats reactive recovery. Key things you can do for clients today:

• Ask about retentions and cash flow timing gaps

• Set up weekly GST visibility snapshots (not just monthly reports)

• Track hourly profitability on labour (not just gross margin)

• Escalate to a tax debt specialist before pursuing a restructure, not after.

Why Many Small Business Restructures Are Failing

SBRs (Small Business Restructures) are being sold as a “quick fix” for tax debt — but many fail due to:

• Incomplete lodgement history

• Over-optimistic forecasts

• Undisclosed director loans or intercompany balances

• ATO policy shifts on who they will support

Advisors are increasingly contacting us after the ATO has voted against a restructure — leaving their clients exposed with no Plan B.

Key Reminder:
An SBR isn’t a silver bullet. It’s a tool — and one that must be used strategically, not reactively.

Visibility First. Strategy Second.

Most clients don’t have a tax debt problem — they have a visibility problem.

Whether it’s retention blind spots, unrealistic margin assumptions, or backloaded cash flow, many of the issues we see were entirely preventable with weekly, real-time data.

Tax | Debt | Tannins — Melbourne

If you're Melbourne-based, this one’s worth a spot in your calendar!

The sell-out lunch series event for advisors returns, hosted by Olga Koskie (Tax Assure) and Steve Heavey (Asset Based Lending).

What To Expect:

• Real talk on ATO enforcement, tax debt, and cash flow risk

• Candid peer conversation (no panels, no pitches)

• A three-course lunch, guided wine tasting, and next-level networking

If you're advising clients under pressure — this is where the real conversations are happening.

Tickets selling fast. Book now. 

Not in Melbourne or can’t make this one? Register your interest for future events near you.

▶️ Curious why it sells out every time? Watch the highlights reel to see why.

Here are six things to review this month and bring into your action plan.

1. Spot early cash flow pressure
Look for signs like ATO debt, late super, or supplier stress. These are early indicators that action is needed — not just red flags.

2. Flag aged ATO debt — not just big numbers
A $70K debt that’s 12 months old is a bigger risk than a fresh $120K one. The ATO’s focus is compliance patterns, not size alone.

3. Confirm ASIC and ATO contact details
Outdated info = missed warnings. This is how many clients get blindsided.

4. Review overdue or failing payment plans
Even the best intentions fall flat if a plan is behind. Defaults escalate quickly.

5. Escalate when the ATO goes quiet
Silence isn’t safety — it’s often a signal enforcement is coming. Don’t wait for a DPN or garnishee to land.

6. Reassess payment plans causing cash flow strain
Don’t wait for the plan to choke operations or trigger ATO enforcement — renegotiate early, before things break.

Good businesses go bad when no one’s paying attention.

If you work with clients in construction, trades, or project-based industries — don’t wait for the ATO to move first.

🔑 Proactive Action: Stay ahead of ATO deadlines and encourage clients to act now, rather than waiting for an ATO notice.

📞 Connect with Tax Assure: We’re here to guide you and your clients through the most complex tax debt scenarios. Book a consultation.

IN CASE YOU MISSED IT

▶️ How ATO payment plans can help directors with expired DPNs
▶️ SBRs & The Real Cost of “Quick Fix” Advice
▶️ ATO Stress, Bookkeeping Blind Spots & the Cost of Delay
▶️ Case Study: Turning Around a $1.4M Construction Tax Debt

THAT’S IT FOR JULY

Got feedback? We’d love to know what landed—or what missed. Just hit reply and share your thoughts!

^{Disclaimer: The information provided is for general purposes only and should not be considered as specific financial, tax, or legal advice. We recommend consulting with a qualified tax professional or advisor to discuss your specific circumstances before making any decisions or engaging with the Tax Assure team directly.}